When you hire employees in India, your main obligations centre on three things: contributing to the Employees’ Provident Fund (EPF), funding the Employees’ State Insurance (ESI) scheme, and withholding income tax (TDS) from each employee’s monthly salary. State-level professional tax and minimum wage rules add a further layer that varies depending on where your employees are based.
Overview of india’s employer contribution framework
India’s statutory payroll obligations split into two tiers. At the national level, EPF and ESI are the two compulsory social insurance schemes that apply to most employers once they reach a certain headcount. At the state level, professional tax (PT) and the Labour Welfare Fund (LWF) apply depending on the state where the employee works. On top of those contribution obligations, every employer must also operate a TDS mechanism, which means estimating each employee’s annual tax liability and deducting the right amount from their monthly salary before it hits their account.
Epf contributions
How epf works
The Employees’ Provident Fund is a retirement savings scheme administered by the Employees’ Provident Fund Organisation (EPFO). Both employer and employee each contribute 12% of the employee’s basic salary plus dearness allowance (DA) every month.
For employees earning a basic salary up to ₹15,000 per month, EPF contributions are mandatory. At that ceiling, the employer’s mandatory contribution works out to ₹1,800 per month (12% × ₹15,000). Employees who earn above ₹15,000 in basic salary may contribute voluntarily on the higher amount, but only if the employer also consents. If they don’t, both parties simply contribute on the ₹15,000 ceiling.
The current EPF interest rate for FY2026-27 is 8.25%, credited annually to each member’s account.
Epfo registration and remittance
EPF registration is mandatory for every establishment with 20 or more employees. Once you cross that threshold, you must register with the EPFO and remit contributions by the 15th of the following month. Smaller establishments can register voluntarily.
Because EPFO registration requires a registered Indian entity with a valid PAN and business identity, foreign companies can’t register directly. This is one of the practical reasons why companies without an Indian subsidiary use an Employer of Record to manage Indian payroll.
Esi contributions
The Employees’ State Insurance scheme provides employees with medical, maternity, disability, and dependent benefits. It applies to establishments with 10 or more employees where at least some workers earn at or below the wage ceiling.
The contribution rates are:
- Employer: 3.25% of gross wages
- Employee: 0.75% of gross wages
ESI applies only to employees whose monthly gross wage is ₹21,000 or less. For persons with disabilities, the ceiling is ₹25,000 per month. Once an employee’s gross wages exceed ₹21,000, they fall outside the scheme and neither party makes contributions for that employee.
Like EPFO, the ESIC (Employees’ State Insurance Corporation) requires the employer to hold a registered Indian entity to complete registration and remit contributions.
Professional tax
Professional tax is a state-level levy, not a central government one. Individual state governments set the rates, so the amount varies depending on where your employee is based.
In practice, PT is a small fixed deduction from the employee’s monthly salary, calculated according to the state’s salary slabs. The employer deducts it from the employee’s pay and remits it to the relevant state authority. In Maharashtra, for example, the total PT is capped at ₹2,500 per year. Some states charge less; a few states don’t levy PT at all.
As an employer, you’re responsible for checking the PT rules in every state where you have employees, registering with the state authority, deducting the right amount, and remitting it on time.
Labour welfare fund
The Labour Welfare Fund (LWF) is another state-specific levy, applicable only in certain states. Where it applies, the amounts are nominal and the contribution frequency varies by state (some require monthly remittance, others annual). Check whether LWF applies in the state where your employee works and register with the relevant state board if it does.
Income tax withholding (tds)
TDS stands for Tax Deducted at Source. As an employer, you’re required to estimate each employee’s total annual income at the start of the financial year and deduct the appropriate amount of income tax from their salary each month, so the full year’s liability is spread across 12 instalments.
From FY2025-26, the new tax regime is the default for salaried employees. The slab rates under the new regime are:
| Annual income | Tax rate |
|---|---|
| Up to ₹4,00,000 | Nil |
| ₹4,00,001 to ₹8,00,000 | 5% |
| ₹8,00,001 to ₹12,00,000 | 10% |
| ₹12,00,001 to ₹16,00,000 | 15% |
| ₹16,00,001 to ₹20,00,000 | 20% |
| ₹20,00,001 to ₹24,00,000 | 25% |
| Above ₹24,00,000 | 30% |
Employees are entitled to a standard deduction of ₹75,000 per year under the new regime. You should factor this in when estimating each employee’s taxable income at the start of the year.
At the end of each financial year (March 31), you must reconcile the TDS deducted against the employee’s actual income and issue Form 16. Employees use Form 16 to file their personal income tax returns. If you over- or under-deducted during the year, you adjust in the final months of the financial year before issuing the form.
Minimum wages
India doesn’t have a single national minimum wage that applies to private sector employees. Minimum wages are set by each state government and vary by skill category. You must pay at least the minimum wage applicable in the state where the employee works.
To give you a concrete example, Delhi’s minimum wages for 2025 are:
| Skill category | Monthly minimum wage |
|---|---|
| Unskilled | ₹18,456 |
| Semi-skilled | ₹20,371 |
| Skilled | ₹22,411 |
Other states will have different figures. Before hiring in any new state, confirm the current minimum wage for the relevant skill category with the state’s Labour Department. Rates are revised periodically, so it’s worth building a review into your payroll calendar.
Total employer cost of employment
To make this concrete, here’s what the statutory employer contributions look like for an employee on ₹50,000 per month basic salary in a state where ESI and PT both apply.
At ₹50,000 basic salary, the employee’s gross wages will be above ₹21,000, so ESI doesn’t apply. EPF contributions are based on the ₹15,000 mandatory ceiling unless the employee voluntarily opts in on the higher base (with employer consent).
| Contribution | Calculation | Monthly cost to employer |
|---|---|---|
| EPF | 12% × ₹15,000 (mandatory ceiling) | ₹1,800 |
| ESI | Not applicable (gross wages > ₹21,000) | ₹0 |
| Professional tax | Varies by state | ~₹200 (example) |
| Total statutory employer add-on | ~₹2,000/month |
Note: the employer doesn’t “pay” professional tax as a separate cost. PT is deducted from the employee’s salary and remitted by the employer. The real employer cash cost on top of the ₹50,000 salary is the ₹1,800 EPF contribution.
For a lower-paid employee earning ₹18,000 per month gross, ESI would apply and the employer’s ESI contribution would be 3.25% × ₹18,000 = ₹585/month, on top of the EPF contribution.
Hiring in india without a local entity
EPF registration, ESI registration, and TDS compliance all require a registered Indian business entity with a valid PAN. A foreign company can’t register with EPFO or ESIC directly and can’t operate a TDS payroll without an Indian legal presence.
If you want to hire in India before setting up a subsidiary, an Employer of Record (EOR) is the standard solution. The EOR is the legal employer of record in India, holds all the required registrations, runs compliant payroll, makes EPF and ESI contributions on your behalf, and handles TDS withholding and Form 16 issuance. You direct the day-to-day work; the EOR manages the statutory obligations.
An EOR is also useful if you’re hiring across multiple Indian states, since minimum wage compliance and PT registration requirements differ by state. Managing those obligations yourself adds meaningful administrative overhead, especially early on.
When evaluating EOR services, check that the provider covers multi-state PT registration, handles EPFO and ESIC filings, and issues Form 16 to employees at year-end.
FAQs
What is the EPF wage ceiling and how does it affect employer contributions?
The mandatory EPF wage ceiling is ₹15,000 per month of basic salary plus DA. Regardless of what an employee earns, the employer’s mandatory contribution is capped at ₹1,800 per month (12% of ₹15,000). If an employee earns more and wants to contribute on the higher amount voluntarily, both parties can agree to do so, but the employer isn’t obligated to match above the ceiling.
Does ESI still apply if an employee earns more than ₹21,000 per month?
No. ESI applies only to employees whose monthly gross wage is ₹21,000 or less (₹25,000 for persons with disabilities). Once an employee’s gross wages go above that ceiling, neither the employer nor the employee makes ESI contributions for that employee.
What are an employer’s TDS obligations in India?
You must estimate each employee’s annual taxable income at the start of the financial year and deduct proportional income tax from their monthly salary across 12 months. You remit the deducted tax to the government monthly and issue Form 16 to each employee after the financial year closes. If circumstances change mid-year (a pay rise, a change in deductions), you recalculate and adjust the monthly deduction going forward.
Are India’s new Labour Codes in force?
Not yet, as of 2026. India passed four Labour Codes between 2019 and 2020 that were meant to consolidate 44 existing labour laws. However, most states haven’t notified the implementing rules, so the codes haven’t taken effect. The operative laws remain the existing statutes: the EPF Act, the ESI Act, the Payment of Gratuity Act, and others. Keep an eye on this, but don’t plan your compliance around the new codes until the notification process is complete.
Do minimum wages vary between Indian states?
Yes, significantly. Each state sets its own minimum wages by skill category, and rates differ widely. There’s no single national minimum wage for the private sector. Before hiring in a new state, check the current minimum wage for the relevant skill category with that state’s Labour Department. Rates are revised periodically, so build an annual review into your payroll process.
